By Graham Billings on August 24, 2010
.jpg.aspx?width=75&height=75) Paying off your mortgage early can be a good strategy for saving money long term. Mortgages are a huge, lifelong investment, and depending on how your mortgage is structured, you may end up paying as much as the value of the home in interest payments! For that reason, it can be quite a money-saver for you to pay more money on your mortgage early.
First, look at the terms of your mortgage, including your interest rate and term, in order to determine whether paying off the mortgage will be beneficial for you. If you have a high interest rate, you can pay more now and you will pay much less interest over the rest of the loan. Similarly, if you have a long term to your mortgage, like 30 years, you may be better off paying more money now in order to have more security, in terms of home ownership, in the future. Also, make sure your mortgage does not impose charges for pre-payment.
On the other hand, there are certain situations where you may not want to pay off your mortgage early. If you have a low interest rate, it may actually hurt you to pay off the mortgage early. Instead of putting the money towards your house, you could instead invest that money, and make more money from savings interest than you will have to pay in mortgage interest. Therefore, it is important that you do the math on your own to make sure it is right for you.
Another thing to watch out for is refinancing your mortgage in order to save money. Sometimes it can be beneficial to lower your interest rate, but you should watch out for adjustable rates that sound good now but may get unaffordable once interest rates go up.
In order to pay off your mortgage early, you can usually just send extra payments or get on a payment plan with more payments. If you account for paying off your mortgage early in your budget, you can save a lot of money in the long run without it affecting you too much now.
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